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Just between you and me

One of last week’s links, about the changing cartel rules in the U.K., got me thinking about some of the policy choices around cartel enforcement.

Let me start off by stating that I don’t know much at all about how the U.K. handles cartels. Until reading that post, all I really knew is that the U.K. approach to criminal cartel enforcement is sufficiently different from the U.S. approach that Ian Norris could not be extradited on price fixing charges (he was eventually extradited on obstruction of justice charges).

From following the Norris case I knew that he couldn’t be extradited on price fixing charges at least in part because of a “dishonesty” element in the U.K.’s concept of cartel conduct. Because U.S. law does not require that prices be fixed “dishonestly,” the charge he would face in the U.S. would not constitute criminal conduct in the U.K. I’d not previously given a lot of thought what a “dishonesty” element meant, but obviously it introduces some questions about the cartel member’s intent. Although, frankly, is there such a thing as honest price fixing?

Apparently that question no longer matters (or shortly will not matter), as Professor Whalen tells us. It seems that dishonesty is out and to be replaced by new rules under which secrecy may be the key. Apparently if you publicize your cartel (either to its intended “victims” or generally to the public via a as yet to be prescribed procedure), it’s not illegal. Moreover, you will have a defense if you can show that you didn’t intend the agreement to be kept secret from your “victims,” you didn’t intend to keep it secret from the UK’s competition regulators, or you sought legal advice before implementing your cartel.

Let’s put that last bit to one side, because it definitely needs some separate discussion. First let’s look at the interesting questions that these defenses raise about the right policy choice for criminalizing cartel conduct. Perhaps there are some unique reasons why the U.K. is keen to have this type of exemption (maybe it has something to do with certain businesses that are concentrated in London of which joint action is a hallmark), but maybe they are on to something.

Obviously, none of these things are formally defenses in the U.S., where price fixing and bid rigging are per se illegal. Nonetheless, there are industries, for example, in which submitting a joint bid is not at all unusual, either because two companies have different strengths or need their combined capacity to do the job, or for some other perfectly legitimate reason. While its unlikely that anyone would really complain or that the agencies would be interested in bringing an enforcement action, nonetheless such bids arguably violate the Sherman Act to the extent that two jointly bidding parties who could have bid separately collectively decided not to do so.

But should they? On some basic level, is it appropriate even theoretically to penalize conduct that’s entirely out in the open? To some degree the Supreme Court’s decision in Dagher seemed to recognize that a well publicized combination of businesses is not a cartel, perhaps reflecting some basic notion that you’re not really ripping anyone off if they know what you are doing and there are alternative suppliers who are not parties to the alleged agreement.

On the other hand, the public knowledge of the existence of an agreement could facilitate coordination. If Bob and I set up a widget cartel that fixes prices for the 22% of the widget market we control, knowing about our arrangement has to reassure the rest of he widget market that they need not fear competition from us. Perhaps it’s that loss of robust competition and increased potential for coordination that justifies the U.S. per se rule even for cartels that are common knowledge.

Or maybe I’m making a mountain out of a mole hill. There has been no tide of prosecutions of joint bids that were openly submitted and adequately supported by a pro-competitive justification. And even if there is a case for a transparency defense in a bidding rigging case, is being told about the cartel any solace in a price fixing case? For some goods customers could simply decline to purchase the price-fixed product on principle, or do extra searching to find a supplier that isn’t a member of the cartel, but the loss of enjoyment of the foregone product or the extra work to find market-priced product sure look like consumer harm of the type that competition law is meant to prevent. In the end, I guess I’d come down in favor of the American per se rule (how controversial of me).

Finally, let’s look at that last defense, in which, at least according to Prof. Whelan, you can defend yourself by showing that you sought legal advice about your anti-competitive agreement. I’m really not clear on how that is supposed to work. It seems that it’s not meant to be an advice of counsel defense (that is, you don’t seem to have to show that you sought and followed advice that told you your conduct was legal). It seems that all you have to do is to have asked for the advice, no matter whether you received it or acted on it. So if Bob and I ring our solicitor in the City to tell him about our plan to fix widget prices and are advised that doing so would be illegal, we nonetheless gain a defense from that phone call should we chose to ignore the solicitor’s advice.

As Prof. Whelan points out, that seems particularly questionable. In addition to the issues he raises, it may prove tricky for lawyers who advise multinational clients. What are your obligations if a client seeks advice about establishing a cartel and then sets about to do so? What do you even tell that client about its potential exposure? Is there an ethical obligation to report up to the chain of authority within the client (or to its board) that the employees who sought your advice plan to break the law, even though there may be an available defense?

And while you may have a defense under U.K. law, if your agreement has effects in other countries, it may still be per se illegal in those countries. How do you make clients sufficiently appreciate that fixing prices locally might be enough to get U.S. plaintiffs’ lawyers to argue that prices were also raised globally and thus in the U.S.?

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